Marketers Are Putting Money Behind Retention
The conventional wisdom that it is cheaper and more profitable to keep existing customers than to constantly cultivate new ones seems to be catching up to marketing strategists. Grizzard Performance Group, a direct marketing strategy outfit, recently published a survey of top marketing executives at large and midsize companies. The study gauges attitudes towards customer retention and valuation.
"Five to seven years ago there was a [customer] acquisition binge. The tip of the iceberg was when MCI fired its marketing staff and replaced them with salespeople," says Michael King, group vice president at Grizzard. "Basically, they were concentrating efforts on customer acquisition instead of retention, and marketing departments were being diluted."
King designed the survey to test a hypothesis that as the growth-crazy era faded from memory, companies would shift their attention back to customer retention. Conducted in late spring 2004, the survey confirms this hypothesis. Fifty-eight percent of respondents say they are focusing the bulk of their marketing resources on customer retention, compared to just 30 percent who are mostly devoted to new customer acquisition.
The numbers have virtually reversed in two years. As recently as 2002, 58 percent of companies told Grizzard their primary focus was customer acquisition, with 34 percent preferring retention.
Grizzard also found that most companies are developing a more refined approach to allocating marketing programs by customer value. Seven in 10 respondents said they divided their marketing efforts based on value, led by midcap firms where the incidence was 74 percent. "The number completely blew us away," King says. "It tells us that companies are beginning to get it--there is not a homogeneous bin of customers anymore."
However, King expresses disappointment that most firms rated value on a simple aggregate sales measurement, rating the length of relationship and overall profitability far lower in the value equation. And only 38 percent of respondents were confident that they could accurately identify the profitability of each individual customer year-over-year. "When we mine down deeper and asked these senior marketing executives how they define value is when the bad news kicks in, because most of the companies are inaccurately defining customer value."
King plans a follow-up survey to ask marketing executives hard questions about how they deal with customers who cost more than their profit margin to serve. That problem is easier to deal with now that marketing organizations have shifted more attention to ongoing value rather than on closing an initial sale and moving on to the next prospect on a list. King says: "The acquisition binge has ended."
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